- NEW YORK (Reuters) - A bankruptcy
by General Motors Corp. is not "far-fetched" if present trends
at the company persist, Standard & Poor's said on Monday, shortly after
cutting GM's ratings deeper into junk territory.
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- The downgrade and S&P's comments initially sent
GM shares and bonds lower as investors fretted about the rising risk that
the world's largest automaker will have trouble paying back all of its
debt.
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- "In the past we might have felt at different points
that the concerns about bankruptcy risk were way overplayed," said
Scott Sprinzen, speaking on a conference call with reporters and analysts.
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- "At this juncture, it's our conclusion that this
isn't a far-fetched possibility if the kind of deterioration in results
we've seen over the last few quarters should continue," Sprinzen said.
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- GM spokeswoman Gina Proia said the automaker has no
strategy or intention to declare bankruptcy.
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- "GM has an aggressive and well thought-out strategy
to turn around our North American business and we're making progress in
some important areas," she said.
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- S&P cut GM's corporate credit rating by two notches
to "B," five steps below investment grade, from "BB-minus."
The outlook is negative, meaning the rating is likely to be lowered again
over the next two years.
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- S&P's rating on GM is the lowest of the three major
rating agencies.
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- GM has lost nearly $4 billion this year as it battles
high health care and commodity costs, eroding U.S. market share and slumping
sales of its once-profitable sport utility vehicles.
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- Consolidated debt outstanding was $285 billion on September
30, S&P said.
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- "The changes that will have to occur to turn this
company around to cause it to be a profitable auto manufacturer are huge,"
said Dan Zaldivar, fixed income analyst at RBC Capital Markets in Chicago.
"This is a very big ship and it turns very, very slowly."
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- Ratings on GM's finance arm, General Motors Acceptance
Corp., were not changed but remain on review with "developing"
implications, meaning the direction of the rating is uncertain.
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- The developing status reflects the possibility that
GM may sell a controlling stake in GMAC to a highly rated financial institution,
S&P said.
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- "This year has witnessed a stunning collapse of
GM's financial performance compared with 2004 and initial expectations
for 2005," S&P said.
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- Net losses at North American operations could reach
$5 billion for the year, even before substantial impairment and restructuring
charges, the rating agency said.
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- An industrywide falloff in demand for sport utility
vehicles makes it doubtful that GM's new models can help restore its North
American operations to profitability, S&P added.
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- S&P's downgrade came on the same day that bids were
due to buy a controlling stake of GMAC as GM tries to restore the unit's
investment-grade ratings. Borrowing costs at GM and its financial unit
have soared since they were first cut to junk in May.
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- GM's bonds with an 8.375 percent coupon due in 2033
fell to 71.1 cents on the dollar from 73.25 cents on Friday, according
to MarketAxess.
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- In after hours trading, its shares fell 31 cents to
$22.74 on Inet from a close of $23.05 on the New York Stock Exchange.
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- © Reuters 2005. All Rights Reserved.
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